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Jul 6, 2016

The Corporate State

Independence Day always leads to an outbreak of stories about the glories of democracy from the usual suspects in the media. One of the stranger things in my lifetime is the fact that when I was young, democracy was a fetish of the Left, while the Right scoffed at the wisdom of the masses. Today, it is a fetish of the Right and the Left is making ominous noises about the foolishness of elections and democracy. The result is the so-called conservative media turns July 4th into a saccharine celebration of democracy.

Most everyone reading this is bright enough to know that America was never intended to be a democracy and it is not a democracy today. The Founders imagined a republic composed of sovereign states that would do the bulk of the governing. The Civil War obliterated the sovereignty of the states, thus allowing the Federal government to assume most of the governing. Our state governments perform administrative tasks on behalf of the Federal government, often financed by Federal tax dollars.

It’s tempting to think America is on a long path toward Caesarism, where the institutions of republican government are hollowed out as power is transferred into the hands of an authoritarian. The trouble with that is the modern nation state is too complicated for that sort of autocratic rule. The nation state is a vast bureaucracy today with a semi-permanent staff loyal only to the bureaucracy. They take direction from the executive, but the scope of the government is too massive to control in a fine detail way.

Consider some numbers from the US government. Health and Human Services has about 150 employees who report directly to the president. These are appointees usually brought in the by the Secretary of HHS. The department has 78,000 employees that are civil servants. Most of what HHS does on a daily basis is unknown to the White House staff. Most of it is unknown to bureaucracy itself. An organization of that scale and permanence takes on a life of its own. It’s a giant blob that absorbs what it touches.

This is why we have elections and not much changes.The rhetoric changes and maybe the way the bureaucracy is sold to the public changes a bit. Otherwise, the only thing that changes is the overall size of the state. It always gets bigger. 50 years ago the Feds spent about $4500 per citizen and today they spend close to three times that. This is in inflation adjusted dollars. That’s a lot of elections with nothing ever changing, suggesting something else determines the size and scope of the state.

A better way to think of the modern nation state is as a corporation. The modern publicly traded corporation is setup to profit the owners, who are the stockholders. The people running the corporation, the CEO, the CFO, the senior managers and so forth, are put in place to run the enterprise in the interests of the owners. You, as a stockholder in Apple, want to see the company make money so your stock goes up in value. You don’t get to set company policy, but you have a vote at a shareholder meeting.

Now, the major stock holders have some say in the management of the firm. These are the people who sit on the board and decide who is put in as a CEO or push for a shakeup of the management team when necessary.They are not running the daily operations, but they get to decide who is running the daily operations. Like the small stockholders, they want to see profit so presumably they have the same interests as those small shareholders. Sometimes they have other motives, which are at odds with the shareholders.

The modern state is similarly arranged. The super rich are not bound by the state any more than a major shareholder is bound to the company. They sit on the board as major political donors and fixers, but they may perform this function for many countries, just as a rich guy sits on the boards of many firms. Sheldon Adelson is just as involved in Israeli politics as he is US politics. George Soros is involved in the politics of a dozen countries, including countries that are in competition with one another.


The voters of countries are the small shareholders. They have some say in things, but only at the fringes. When the board puts up two candidates for the CEO position, the voters get some input on which one gets the job, but usually both choices are offering the same thing. Whenever there is a shareholder revolt and an alternative option is presented, the members of the board close ranks to fight it. They do this to protect their prerogatives as major shareholders. Even if the people are right, they cannot be allowed to dictate policy to management, much less the board. After all, the corporation is not a democracy.
That’s the state of the West. The nation states are now just corporate states, run by a relatively small number of global billionaires. The small shareholders get to show up at shareholder meetings and pretend to have a say in things, but the management is not beholden to them. The managers in the corporate state are the politicians and their accessories in the political class. These people answer to the board that put them in their positions. It’s why no matter who wins an election, the results are always the same.

It’s also why we are seeing attempts at merging the nations of Europe into a single conglomerate. Consolidation is the natural dynamic in the corporate world. It’s why we are down to three PC makers when 25 years ago there were dozens. It’s why there are two mobile phone players when there used to be a dozen. Corporations must always grow to survive so when growth is no longer possible, they merge with others or acquire smaller firms. Global governance is really just Google streamlining the corporate states to make them more efficient for the purposes of the major shareholders.

It’s tempting to say this has always been the arrangement, but it was not always thus. Within living memory it was impossible for a guy like George Soros to play in domestic politics across borders. Countries were like family business and the owners were covetous of them. The credit age has allowed every nation in the West to go public and turn themselves into formless corporate blobs, slowly loosing their original identity. The planned merger of Europe into one big soap ball is intended to cleanse national identity.
How this ends up is anyone’s guess. The history of the equities markets is the story of bubbles and busts so the credit money era will do to nations what it has done to many businesses and industries. Of course, every corporate entity goes through tough times and must downsize. That usually means layoffs and terminations. The application of that to the corporate state should be interesting. Maybe that’s why both parties in Washington suddenly want to take away all the guns.